Grain markets pushed through the middle of May with a little more volatility under its belt as more volatile weather and geopolitical risk in Washington, D.C. & Brazil has created some additional uncertainty. The Canadian Loonie gained 1.45% for the week, which should’ve pushed canola lower but it traded sideways on spot contract in Western Manitoba and new crop price losses were limited by delayed seeding conditions, holding around $10.50 CAD / bushels are maintaining their $6 / bushel handles but some good progress in the fields and rains alleviating dry Western Europe drew cash values down a bit. Yellow peas dropped a bit as well while soybeans values got dragged down with the rest of the futures market because of Brazilian farmer selling.
Heading into the Canadian May long weekend, parts of Western Canada and U.S. Northern states were hit with sub-zero temperatures which shouldn’t affect the large, large majority of fields since they’ve just barely been planted (or not at all). In the U.S. though, the American farmer continues to plant a lot of grain very quickly, with the last U.S.D.A. progress report telling us that things are nearly caught up to their 5-year averages. Of course, the above doesn’t necessarily account for the amount of acres that will likely be required to get reseeded. There’s an argument that because of some cooler temperatures over the next 2 weeks, there’s stronger possibility of the American corn crop pollinating in the 2nd half of July when it’s usually really hot (While there’s no proven correlation between colder temperatures in May and yield potential, hotter temperatures usually seen in July can have some impact). However, this is entirely speculative at this point and hard to dig into too deeply at this point and that’s what more people will try to do when there’s a lack of market-moving news.
Switching over to soybeans, the story this week has been all about Brazil. Earlier in the week, the Brazilian real (their currency) hit a one-month high, pushing domestic grain prices in many areas below their actual cost of production. Entering the week, Brazilian farmers have been slow sellers of their soybeans (which is just sitting in their bins) and with the safrinha corn crop just about ready to get harvested, they’re going to have to make a call of either making soybean sales, selling corn off the combine, and/or piling the corn on the ground. However, later this week, tapes were revealed of the Brazilian President agreeing to continue bribing witnesses in a corruption scandal. This sort of political risk will be considered unstable for the country, and therefore, the currency becomes less of a strong asset to hold and investors sell it (Simple rule: uncertainty with the government equates to uncertainty with the currency). With the tapes out, the Brazilian dropped about 8% to a 6-month low, helping soybean prices climb to a new 3-month high and farmers there to unlock their bin doors. It’s already been rumoured that at least 3 million tonnes of soybeans were sold by farmers on Thursday as a result. With this sort of selling, there is likely less interest in buying the next few Panamax vessels from America.
Finally, U.S. President Donald Trump officially moved to start re-negotiations on the North American Free Trade Agreement, seeking to modernize things by addressing or adding new provisions. For the American, Canadian, and Mexican agricultural industries, the stakes are high. Case in point, U.S. ag exports to Mexico and Canada have gone up 5x and 3x respectively since N.A.F.T.A.. With the required 90-day consultation period with Congress/American industry officially started by the top U.S. trade negotiator, Rob Lighthizer, this week, the countdown is on until August 16th, 2017 when new tri-lateral talks could begin. The simple translation is that Mexican and Canadian bureaucrats officially have 3 months to figure out how to limit any pain that Trump & Lighthizer are looking to inflict in changing the 23-year old free trade deal. Hopefully though, all sides can realize before a fire sale starts that N.A.F.T.A. provides the foundation for an integrated economy versus 3 separate working ones.